Is A Settlement Agreement Legally Binding?

A settlement agreement is a legally-binding document between an employee and their employer. The employee agrees to settle all and any claims and waive the right to bring future claims against the employer at a later date. The employee receives payment for doing so.


Our UK settlement agreement solicitors see a variety of different reasons for an agreement being offered, including redundancy, retirement, underperformance or any other dispute arising concerning an employee’s employment.


The idea is that a settlement agreement will amount to a legally binding agreement evidencing the terms of departure between an employee and his or her employer.


Provided that the document is signed by the employee, the employer and the employee’s legal advisor, then it will be binding on the parties to the agreement.

Party to the agreement


The party to the agreement are ordinarily simply the employee and the employer, although in some cases where there is a business transfer, for example, there may be two employers who are parties to the agreement.


The document, once signed, is a binding contract which may be enforced, according to the jurisdiction clauses set out in the agreement itself, normally in the Courts of England and Wales.


The settlement agreement typically includes binding provisions which detail payments to be made to the individual and over what period those payments should be made. If the employer defaults on making those payments, the individual may elect to enforce the legally binding agreement through the Courts.


Similarly, the individual will be providing various undertakings within the legally binding agreement, including confidentiality and non-derogatory statements undertakings, which, if breached, will also give rise to a claim for a breach of the legally binding agreement on the part of the employer.


These claims are typically bought in the High Court or the County Court. In a situation where the claims are for damages exceeding £10,000, it may be possible for the party pursuing that claim to recover their legal costs, as well as any damages that are owed to them.

Waiver of claims


An employee entering into a settlement agreement provides a waiver that he or she will not pursue any claims arising from the termination of their employment or their employment itself.


A reasonable agreement typically lists all of those claims that the employee will be waiving by agreeing. It is most common for employees to waive claims such as unfair dismissal as well as claims for discrimination or whistleblowing when they enter into a legally binding settlement agreement.


If an employee elects to pursue a claim, even though they have signed a legally binding settlement agreement, they will often be required to repay any monies which have been paid to them under the agreement. In addition to this, employees who have entered a legally binding settlement agreement are likely to have given an indemnity about any costs incurred by the employer arising from a breach by them of the terms of that agreement.


This means that if an employee breaches a legally binding settlement agreement, they may find that they are required to repay more monies than they received under the agreement itself, due to the costs which may be incurred by the employer pursuing a claim against them.